Every industry has its own set of acronyms, language and jargon and the beverage alcohol industry is no different. The words shipment and depletion have distinct meanings that identify specific transactions along the supply chain. Related to those two words, and looking at current market conditions, the word destocking is playing an increasingly large role in growth trends.
What is Destocking and Why Now?
Destocking is simply defined as a business making the deliberate decision to reduce the level of inventory to operate their business. As the cost of operating capital has increased, the emphasis on inventory management at retail has gained more focus and rigor. We have heard CEOs on the supplier side cite “inventory adjustments” and “brands impacted by destocking” in their quarterly reporting.
Newly available February-ending SipSource data (March 2023 – February 2024) supports this focus on inventory management at retail as depletions for spirits are down -2.2% and -8.2% for wine. The numbers for the latest three months (December 2023-February 2024) are even softer with spirits down -3.3% and wine down -8.6%, as retailers managed their year-ending inventories. SipSource Analysts believe the March/April period will deliver some improvement, as spirits were down -6.2% and wine was down -11.3% during this period in 2023.
Off-Premise to Drive Growth in 2024
After four years of disruption, on-premise depletions have generally normalized and are down -2.0% for wine and spirits combined. Spirits continue to win in the on-premise and are up +0.9% at the end of February. The main struggle is in the off-premise, which is down -5.9% in volume for combined wine and spirits. In 2024, the off-premise performance will be key to drive growth.
Premiumization Craze Has Stalled
Another word important to the beverage alcohol industry in recent years has been premiumization as consumers gravitated to higher priced items, especially for spirits. While many consumers continue to seek more premium experiences, the best performing area for spirits is the below $10 price segment at -0.5% while the worst performing is the over $100 price segment at -13.3%.
What’s Next?
The key word for calendar year 2023 was in fact destocking and it impacted everyone along the entire supply chain. The big question as we head into the calendar year 2024 is, to what extent has inventory been rebalanced? With interest rates remaining high, SipSource analysts do not expect to see a significant move to increase inventory at retail, but a strong consumer pull would ease our pain.
